Mexico Peso Falls as Interest-Rate Gap With U.S. Seen Shrinking

Mexico’s peso fell the most in Latin America as Federal Reserve officials predicted their target interest rate will rise to 1 percent at the end of 2015, potentially reducing the allure of higher-yielding Mexican assets.

The currency depreciated 1 percent to 13.2859 per U.S. dollar today, according to data compiled by Bloomberg. It’s the biggest drop on a closing basis since Feb. 3. Yields on peso bonds due in 2024 rose eight basis points, or 0.08 percentage point, to 6.26 percent.

Mexico’s peso slipped along with most emerging-market currencies after a majority of Federal Open Market Committee participants today said they expect the Fed’s first increase of its key rate in 2015. Since the Fed cut its target rate to zero in 2008, foreign investors seeking higher yields have piled into Mexican government bonds, bolstering demand for the peso. Analysts surveyed by Bloomberg forecast that Mexico will maintain the country’s key rate at 3.5 percent on March 21.

“The outlook was clarified,” Ramon Cordova, a trader at Banco Base SA, said in an e-mailed response to questions. “Initially it will hurt most currencies, including the peso.”

The Fed also reduced the monthly pace of bond purchases by $10 billion, to $55 billion. The Fed on Dec. 18 announced its first reduction in bond purchases, to $75 billion from $85 billion, then followed up with an equal cut in January to $65 billion.

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